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Estate planning issues flagged with $1.6m pension transfer cap

SMSF practitioners are being urged to consider fresh estate planning issues that have surfaced since the proposed introduction of the $1.6 million pension cap.

SuperConcepts executive manager of technical services Mark Ellem says some super members will be forced to receive death benefits as a lump sum, as receiving the benefit as a reversionary pension will push them over their $1.6 million pension transfer cap balance under the new reforms.

“That can cause some issues with liquidity when you pay that commutation out,” Mr Ellem said.

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Fortunately, SMSFs will generally have the option to pay the death benefit out as in-specie transfer of assets, he added.

Mr Ellem said it was something practitioners should be flagging with clients, especially when they are discussing the client’s estate planning.

SMSF practitioners should also ensure clients are aware that the balance transfer cap is percentage based rather than amount based.

“You’re going to have to keep track of clients when they commence pensions of what their personal transfer balance cap is, because that’s not necessarily going to equate to the general transfer balance cap,” he said.

Mr Ellem explained that if an individual has used their full $1.6 million transfer balance cap, and the general balance cap amount is later indexed to $1.7 million, the individual will not be able to contribute a further $100,000 because their balance cap has already been 100 per cent used.

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: This email address is being protected from spambots. You need JavaScript enabled to view it.